As the fundraising climate shifts, founders must adapt how they approach, pitch, and build relationships with investors. In the latest webinar of Electric’s Leadership Series, we heard from a panel of experts on early stage fundraising, including:
- Carl Niedbala, Co-founder, COO at Founder Shield
- Brad Svrluga, Co-founder, Primary Venture Partners
- Andrew Oddo, Managing Director, Silicon Valley Bank
- Amit Barkeet, CEO, Perimeter81
- Ryan Denehy, Founder and CEO, Electric
Watch the full webinar here, or read on for a recap of their insights!
How Can Entrepreneurs Get Started In Their Fundraising Journey?
For startups that are new to the fundraising game, the hardest part can be knowing where to start. Amit says there are two key factors to consider at the beginning. “One is building your co-founding team to make sure you complement each other… The second is to figure out the product market fit. Perceive the market feedback on your idea and iterate your vision and presentation as you go.”
Andrew advises entrepreneurs to really assess whether their venture is a backable idea before researching potential investors. “Qualification is so important. How do I make my first conversation with [the investor], who meets thousands of entrepreneurs, feel ever so slightly like a second conversation? I need to understand the firm so that when I walk in the door, I have a genuine reason for reaching out to them… Showing that you’ve done good qualification and research changes the nature of the conversation right off the bat.”
Carl reiterated Andrew’s points on research, as well as the need to refine the pain point that you solve. “Why are you personally solving that pain point? Because the ‘how’ might change over time, but the ‘why’ is really important. That’s going to be the driving force behind you and the founding team.”
How Can Small Businesses Decide Whether To Raise?
“There are so many great business ideas that really don’t need venture funding,” says Ryan. “If you’re working on a new business, but you don’t think it has the long-term opportunity to be a very large, essentially public company, and you don’t think there’s necessarily a model to scale to that point very quickly, it’s probably not a venture business.”
“But the inverse is true, too. If you stumble on a market opportunity where you can build something that could be a very large, enduring business, that has an opportunity to win or take over an entire vertical, that could generate hundreds of millions of dollars of revenue, and that could scale very quickly – that’s exactly the kind of thing that VCs are looking for.”
Amit says that macroeconomics also play a role, and it’s important to be aware of the climate as well as your long-term business plans. “The answer last year and now is a bit different… As Ryan mentioned, it’s about the opportunity and what you are pursuing. If you would like to build a business that will generate profits and grow slowly, then you should evaluate in different ways. But if you are chasing a big dream, you will need capital.”
What Are The Different Ways That Startups Can Raise Funds For Their Business?
Brad says that when it comes to Angel vs Seed, it all depends on what you need. “Angels are probably an easier, better path if you can find your way to them,” he says. “Angel money enables you to just start building, so you are that much more credible when you walk in the door of an institutional investor. If you don’t have core entrepreneurial credibility, or if you haven’t been in the startup ecosystem before, that’s going to be very tough with us or any of our peers [as investors].”
Brad also advises against cold inbounding. ”If I’m going to bet on you as an entrepreneur, I need to bet on you as a scrappy, gritty, make-things-happen person. If you can’t find somebody who knows somebody, and navigate your way to me, that’s not a very good sign about your resourcefulness.”
Andrew says getting funding from a good institutional investor is like getting into Harvard. “If there’s 1,000 kids in the freshman class at Harvard this year, there could have been 8,000 kids who were totally qualified applicants… We’re the same. We’ll do eight deals a year, maybe 10. We’re going to meet dozens that clear the hurdle, so we have the luxury of being super selective.”
What Do Entrepreneurs And Founders Need To Know Going Into The Process of Raising Funds?
Andrew says that founders must focus on the factors they can control. “Think about the questions that VCs are going to ask and have an honest take on those questions, whether they reflect well on you, or poorly on you.” He warns against making blanket statements like, “we have no competition.”
“Brad’s got a massive team that’s going to go research the competition and create a narrative that works against me, because I didn’t come in with the narrative. Own your narrative and prepare for the things that are always going to come up.”
“An investor is going to throw some sort of adversarial, perhaps unfair question at you, just to see how you react to that adversity. If you’re not prepared for that, then you’re not prepared for the arena you’re going into. As you head into this process, practice with your advisors, friends, family, bankers, and lawyers to get used to that line of questioning.”
Andrew also advises against including a valuation in your pitch deck. As an investor, Brad agrees: “I think valuation-wise, the best answer for you as a founder to give is, ‘We don’t name the price, the market determines the price.’ Because then, suddenly, I’m going to have to make the first move on price. And I don’t want to be the guy who tries to lowball it.”
Ryan says founders must balance conviction with coachability. “Early in my career, when I sat down with investors, I felt like I had to have an answer for everything. In hindsight, I cringe when I think about those investor meetings I took when I was like, 24 years old, because I probably sounded like a complete know-it-all, or just super defensive. And both are bad. It’s totally okay and expected to not have all the answers.”
Is There Such a Thing As a Perfect Pitch For Funding And Executing a Business Plan?
Amit says the perfect pitch is continually iterated over time. “Don’t over-complicate the business problem, and make sure you convey the potential and opportunity. I don’t think there needs to be a very detailed business plan, because things will always change. Show your principles and strategy as well as some customer and market feedback… And if someone says no, ask for feedback and continue improving.”
Ryan says preparation is critical. “I assumed that when I sat down in a room full of investors, because I knew the business inside and out and pitched our story every day, I’d be able to just run through a deck and crush it. And the reality is, that’s not how it goes. You need to be so tight and so crisp when you sit down in front of an investor or partner meeting.”
Andrew says to think of it as a conversation rather than a pitch. “If you find yourself in a room where you’re trying to convince someone to do something, and you’re speaking 80% of the time, it’s not going to happen. They’re not engaged.” When it comes to the deck, don’t overlook the importance of talking about your team. “The feel-good impression you’re left with about the team, to me, is the most essential part, especially early on.”
Brad says that investors know the business will pivot and change over time, which is why the team is so important. “We invest in people and we invest in stories. When you come to pitch us, please don’t drag me through a deck. Let’s sit down and have a conversation. I want to know your personal story, your journey that led you to this… Storytelling drives your ability to raise capital, your ability to recruit people, your ability to sell to customers – especially in the early stages.”
How Can Startups Determine the Right VC Partner?
Carl says the right partnership is like a marriage, and finding the right personality fit is crucial. “This person is going to be on your board for a long time. They may be more hands on, they may be more hands off. Their communication style might be in sync with yours, it might not. Business is people, right? All of those things that you think about in a personal relationship are important.”
Brad reiterated the marriage analogy. “My wife makes me a better person. Do you believe that the partners you’re talking to are going to make you and your business better? You have to be able to articulate to yourself why this person is going to grow the pie more than anybody else.”
“The commonly held wisdom among a lot of founders is that there are three things to prioritize, in this order: partner, firm, and terms,” says Ryan. “If you’re focused on working with a great person first, the firm they’re with is less relevant. You’re going to be far better served working with that person you really get along with, who’s going to really bust their ass for you, than just picking someone from a brand name firm who you don’t have chemistry with. If you get those first two things right, the terms tend to work themselves out.”
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